The alternative path to riches

Navigating a volatile market can be daunting for the ordinary Joe, while the ultra-rich have access to more exclusive investment options. The Holy Grail of Investing is a guide to bridging this gap

The Holy Grail of Investing

Author: Tony Robbins & Christopher Zook

Publisher: Simon & Schuster

Pages: 353

Price:  Rs 699

During the financial crisis of 2008, Tony Robbins witnessed hundreds of acquaintances lose their jobs and savings. This spurred him to ask the question: Can an ordinary American still win at the game of investing? To find an answer, Mr Robbins leveraged his access to some of the top minds in finance and picked their brains. This resulted in two bestsellers: Money: Master the Game  and Unshakeable. In The Holy Grail of Investing, his final book in the money trilogy, he extols the merits of alternative investments.

Mr Robbins is a renowned life and business coach whose live events draw thousands. A brother-in-law of this reviewer who attended one of his events in London felt so charged up that he, along with other participants, walked on a bed of coal—and emerged unscathed. Mr Robbins’ books Unlimited Power and Awaken the Giant Within are reputed to have helped many down-and-out people put their lives back on track.  

The co-author, Christopher Zook, is the founder and chairman of CAZ Investments, which makes exclusive investment opportunities, generally available only to institutional investors, accessible to others.

The book’s title is derived from a conversation Mr Robbins had with Ray Dalio, founder of Bridgewater, the world’s largest hedge fund. Mr Dalio impressed upon him the need to develop a Holy Grail portfolio—one that combines eight to 10 uncorrelated assets so that volatility gets reduced without significantly impacting returns. 

A 60/40 (60 per cent stocks and 40 per cent bonds) portfolio has for long been the gold standard among retail investors in the US. But in recent instances of market turbulence, these ostensibly non-correlated assets fell in tandem. The authors argue that the solution lies in incorporating alternative investments into portfolios.        

While the ordinary Joe invests in public stocks and bonds, the ultra-rich have for long invested in their private counterparts: Private equity (PE), private credit, private real estate, and so on. According to the authors, not only have these asset classes outperformed public (exchange-listed) investments, they have also weathered volatility more effectively.

The first asset class the authors discuss is GP (general partner) stakes. Many investors with the requisite minimum corpus for investing in a PE fund are unable to do so because they are typically oversubscribed. Instead of entering a fund as a limited partner (or LP, as investors are called), Mr Robbins learnt that one could invest as a GP. GPs hold stakes in the asset management firms running these funds, and share in their steady and substantial returns. These firms usually earn a 2 per cent management fee on their corpus and a 20 per cent share of the profits.

When launching a new fund, PE funds nowadays invest their own capital to demonstrate they have skin in the game. This makes launching funds a capital-intensive affair. To raise the capital, they sell minority GP stakes. By acquiring small GP stakes in several asset managers specialising in a variety of sectors, industries and geographies, an investor can gain access to a highly diversified asset class.

The chapters on energy offer a comprehensive overview of the world’s precarious demand-supply balance. The world needs more energy not just to meet the needs of a growing population but also to lift large swathes out of poverty. Wind and solar currently contribute only 3 per cent of the total energy requirement. According to the authors, the belief that fossil fuels will be replaced entirely anytime soon is unrealistic. With the environmental movement becoming more influential and strident, institutional investors face pressure to avoid firms involved in energy exploration.

The authors assert that innovation will address many of these challenges. Companies are developing technologies that can convert fossil fuels into cleaner energy sources. For instance, plants using natural gas to generate electricity could capture and store the resulting carbon dioxide in underground rock formations, instead of releasing it into the atmosphere.

Modular nuclear reactors, small enough to be transported by trucks, and based on technologies much safer than those of the past, offer the promise of green and abundant electricity. Such companies working on tomorrow’s green technologies offer high-risk, high-reward investment opportunities.

The authors also elaborate upon the benefits of other alternative assets such as professional sports ownership, private credit, venture capital and real estate. In the book’s second part, they interview several top-notch fund managers in the alternative investment space.

While the book is US-centric, many of the alternative investment avenues discussed here are available in India now, with well-heeled investors placing big bets on them. Besides high-net-worth individuals, people working with PE and private credit managers, wealth management firms, and family offices will find this book useful for its insights into these lesser-known investment avenues.